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Q2 earnings scorecard -- believe the guidance or believe the bears?

The 2010 2nd quarter earnings season has wound down so it's a good time to do a comparison the 1st quarter.

I always say that earnings are ancient history so I focus on forward guidance. Unfortunately only 40% of companies provide guidance; nevertheless, I would contend 40% is enough to get a good picture of where the market might be heading.

The two charts below compare Q2 to Q1. The percentages displayed are based on the total number of stocks in a sector that provided guidance. This first chart, for example, looks at how many stocks offered upside guidance as a percentage of stocks in a sector that provided guidance.

This chart shows that Q2 is roughly the same as Q1: in both quarters 23% of guidance offered was to the upside. In other words, there has been no decrease in upside guidance quarter-over-quarter. For those pessimists looking for evidence of the double dip, I'm afraid there is no bearish confirmation in this measure.

Not shown are the charts for Mixed guidance and Inline guidance. They are almost exactly like the chart above in that there was very little change from Q1 to Q2.

There has been an increase in the amount of downside guidance in Q2 compared to Q1 but that increase is not that drastic. All told, in Q2, 12% of the companies offering guidance provided downside guidance compared to 9% in Q1. Once again the Financials take their place at the bottom of the barrel.They were noticeably bad in Q1 and even worse in Q2. If there's a double dip happening in looks like it's going to be in the Financial sector.

Conclusion --

Based on forward guidance provided by company management during the Q2 earnings season, it seems the economy is expected to continue to muddle along. The majority of companies are expecting mixed or inline results, nearly a quarter of companies are expecting improved results and only 12% are expecting results to worsen.

This may not be sufficient to guarantee an economic resurgence but it sure doesn't seem to confirm the most dire, double dip projections of the bears.

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